Abstract

This paper examines the factors influencing the lending and profitability of Chinese banks. We especially consider the business cycle, financial market factors, and bank characteristics as influential factors. The analytic period used in this paper covers the years from 2006 to 2010 inclusive. We adopt the random effect model as the empirical model. The main test results are as follows: First, the changes in consumer loans and private mortgage loans are pro-cyclical, but corporate loans are contra-cyclical to the changes in the business cycles. Second, private mortgage loans are sensitive to government regulation on capital adequacy. Third, there is no relationship between bank ownership type and lending behavior in commercial Chinese banks. Fourth, the major determinants of Chinese banks’ ROA are the asset concentration of a few banks and bank size.

Key words: Business cycle, financial market factors, bank characteristics, random effect model.